EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of December 17, 1998 between
LIFE USA HOLDING, INC., a Minnesota corporation (the "Company"), and XXXXX XXXX
(the "Executive").
R E C I T A L S
WHEREAS, the Executive is now and has been an employee of the Company
providing services to its marketing subsidiary;
WHEREAS, the Company's subsidiary, LifeUSA Insurance Company, has
formed a subsidiary, LTCAmerica Holding, Inc., a Minnesota corporation ("LTCA"),
for the purpose of offering life insurance, annuity products and health
insurance; and
WHEREAS, the Company and the Executive wish to enter into this
Agreement to provide for the continued employment of Executive and in connection
with making the services of the Executive available to LTCA and its
subsidiaries, all on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual premises and agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Employment and Duties. The parties hereby agree that, during the
term of this Agreement as set forth in paragraph 2 below, the Executive shall be
employed by the Company and will provide services to LTCA as the Senior Vice
President and Chief Marketing Officer with the duties and responsibilities
attendant to such position. In discharging such duties and responsibilities, the
Executive may also serve as an executive officer and/or director of any direct
or indirect subsidiary of the Company (collectively the "Subsidiaries"). The
salary, other compensation and benefits provided herein may be allocated among
the Company and the Subsidiaries based upon the portion of the Executive's
services provided to the Company and each of the Subsidiaries, respectively, and
the Executive shall assist the Company in making such allocation as the Company
may reasonably request. During the term of this Agreement, the Executive shall
apply on a full-time basis (allowing for usual vacations and sick leave) all of
the Executive's skill and experience to the performance of the Executive's
duties hereunder with the Company and the Subsidiaries. It is understood that
the Executive may have other business investments and participate in charitable
organizations which may, from time to time, require minor portions of
Executive's time, but which shall not interfere or be inconsistent with the
Executive's duties under this Agreement. The Executive shall perform the
Executive's duties at the Company's principal executive offices in Minneapolis,
Minnesota or at such other location as may be mutually agreed upon by the
Executive and the Company, provided that the Executive shall travel to other
locations at such times as may be necessary for the performance of the
Executive's duties under this Agreement.
2. Term of Employment. Unless sooner terminated as provided in
paragraph 4 below, the term of this Agreement shall commence on the date hereof
and shall continue through December 31, 2001; provided that the term shall be
automatically extended for one year on each December 31st commencing December
31, 1999 unless either party gives written notice to the other prior to the date
on which the automatic extension would be effective, provided that the term
shall not be extended beyond Executive's sixty-fifth (65th) birthday.
3. Compensation and Benefits. During the term of this Agreement, the
Executive shall be entitled to the following compensation and benefits for
service to the Company and the Subsidiaries, including any services as a
director of the Company or its Subsidiaries:
(a) Base Salary. The Executive shall be paid a base salary at a minimum
annual rate of $110,000, payable in accordance with the Company's customary
payroll policy, which salary shall be reviewed and may be increased from time to
time at the discretion of the Board of Directors of the Company or the
Compensation Committee of the Board of Directors (the "Base Salary"), provided
that the amount of the Base Salary shall not be reduced after it has been
increased by the Board of Directors or the Compensation Committee without the
Executive's written consent. The performance of the Executive shall be reviewed
at least once each calendar year which may be at the same time as any adjustment
to the Base Salary of Executive. So long as the Executive performs services for
LTCA or its subsidiaries, the Base Salary and other benefits received by the
Executive hereunder shall be reimbursed by LTCA in accordance with the current
leasing agreement between LTCA and the Company, unless this Agreement is
assigned to LTCA pursuant to paragraph 5 hereof.
(b) Bonus. The Executive shall, in addition to the Base Salary, also be
entitled to a cash annual bonus (the "Annual Bonus") based on the achievement by
the Company of performance goals established by the Board of Directors or the
Compensation Committee of the Company's Board of Directors.
(c) Stock Incentives. The Executive shall be eligible to receive stock
options under any stock based plan from time to time adopted by the Company (the
"Stock Plans"), as from time to time determined by the Board of Directors or
Stock Option Committee of the Company's Board of Directors.
(d) Reimbursement of Expenses. The Company shall reimburse the
Executive for all business expenses properly documented in accordance with the
Company's expense reimbursement policy.
(e) Other Benefits. The Executive shall be entitled to participate and
shall be included in any employee benefit plan, medical/dental coverage plan,
life insurance plan, disability coverage plan, or similar benefit plan of the
Company now existing or established hereafter which are generally applicable to
executives of the Company.
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4. Termination of Employment.
(a) Death or Disability. In the event of the Executive's death or
disability (as defined in the Company's long term disability plan then in
effect), the employment of the Executive hereunder shall terminate and the
Company's obligation to make further Base Salary and Annual Bonus (to the extent
not yet earned) payments hereunder shall thereupon terminate as of the end of
the month in which such death or disability occurs. The Executive's rights to
other compensation and benefits shall be determined under the Company's benefit
plans and policies applicable to Company executives then in effect.
(b) Termination for Cause by the Company. By following the procedure
set forth in paragraph 4(e), the Company shall have the right to terminate the
employment of the Executive for "Cause" in the event the Executive: (i) has
repeatedly failed to perform the Executive's duties under this Agreement, which
failure is willful and deliberate; (ii) has engaged in an act or acts of
dishonesty which is or are intended to result in substantial personal enrichment
for the Executive; (iii) has knowingly engaged in conduct which is materially
injurious to the Company; (iv) is convicted of, or pleads nolo contendere to (A)
any felony (other than any felony arising out of negligence), or (B) any crime
or offense involving dishonesty with respect to the Company or any of the
Subsidiaries; (v) has failed to comply with the covenants contained in paragraph
5 of this Agreement; or (vi) knowingly provides materially misleading
information concerning the Company to the Board of Directors of the Company or
any of its Subsidiaries, any governmental body or regulatory agency or to any
lender or other financing source or proposed financing source of the Company or
its Subsidiaries. If the employment of the Executive is terminated by the
Company for Cause, the Company's obligation to make further Base Salary and
Annual Bonus (to the extent not yet earned) payments hereunder shall thereupon
terminate, except the Executive shall receive the Base Salary through the end of
the month during which such a termination occurs. The Executive's rights to
other compensation and benefits shall be determined under the Company's benefit
plans and policies applicable to executives of the Company then in effect.
(c) Termination for Good Reason by the Executive. By following the
procedure set forth in paragraph 4(e), the Executive shall have the right to
terminate the Executive's employment with the Company for "Good Reason" in the
event (i) the Executive is not at all times a duly elected executive officer of
the Company or a Subsidiary; (ii) there is any material reduction in the scope
of the Executive's authority and responsibility; (iii) there is a reduction in
the Executive's Base Salary, a material reduction in the amount of Annual Bonus
for which the Executive is eligible, an amendment to any Stock Plan or employee
retirement plan applicable to the Executive which is materially adverse to the
Executive, or a material reduction in the other benefits to which the Executive
is entitled under paragraph 3(e) above; (iv) the Company requires the
Executive's principal place of employment to be anywhere other than the
Company's principal executive offices, or there is a relocation of the Company's
principal executive offices outside of the Minneapolis/St. Xxxx, Minnesota
metropolitan area; or (v) the Company otherwise fails to perform its obligations
under this Agreement. If the employment of the Executive is terminated by the
Executive for Good Reason before a Change in Control (as defined below) or
following twenty-four (24) months after a Change in Control, the Executive shall
be entitled to the severance benefits set forth in paragraph 4(f) below. If the
employment of the Executive is terminated by the Executive for Good Reason upon
or within (and including) twenty-four (24) months after a Change in Control, the
Executive
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shall be entitled to the severance benefits set forth in paragraph 4(g) below.
In addition, in the event a Change in Control has occurred and the Executive
elects upon ten (10) days prior notice to the Company to terminate employment
with the Company within the sixty (60) day period following the first
anniversary of the Change in Control, such termination shall be considered a
termination by the Executive for Good Reason and the Executive shall be entitled
to the severance benefits under paragraph 4(g) below.
(d) Termination Without Cause; Voluntary Termination. The Company may
terminate the Executive's employment without Cause prior to the expiration of
the term of this Agreement. If the employment of the Executive is terminated by
the Company without Cause before a Change in Control or following twenty-four
(24) months after a Change in Control, the Executive shall be entitled to the
severance benefits set forth in paragraph 4(f) below. If the employment of the
Executive is terminated by the Company without Cause upon or within (and
including) twenty-four (24) months after a Change in Control, the Executive
shall be entitled to the severance benefits set forth in paragraph 4(g) below.
The Executive may voluntarily terminate his employment without Good Reason prior
to the expiration of the term of this Agreement by giving the Company at least
sixty (60) days prior written notice or such shorter period of time as the
Company's Board of Directors may determine. In the event the Executive
voluntarily resigns, the Executive's rights to further Base Salary payments and
the Annual Bonus (to the extent not yet earned) shall terminate on the effective
date of such resignation, and the Executive's rights to other compensation and
benefits shall be determined under the Company's benefit plans and policies
applicable to executives of the Company then in effect.
(e) Notice and Right to Cure.
(i) Termination by Company for Cause. If the Company proposes
to terminate the employment of the Executive for Cause under paragraph
4(b), the Company shall give written notice to the Executive specifying
the reasons for such proposed determination with particularity and, in
the case of a termination for Cause under paragraph 4(b)(i), the
Executive shall have a reasonable opportunity to correct any curable
situation to the reasonable satisfaction of the Board of Directors of
the Company, which period shall be no less than thirty (30) days from
the Executive's receipt of the notice of proposed termination.
Notwithstanding the foregoing, the Executive's employment shall not be
terminated for Cause unless and until there shall be delivered to the
Executive a copy of the resolution duly adopted by the affirmative vote
of not less than the majority of the members of the Board of Directors
of the Company at a meeting called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's legal counsel, to be heard
before the Board of Directors) finding that, in the opinion of the
Company's Board of Directors, the Executive has engaged in conduct
justifying a termination for Cause.
(ii) Termination by Executive for Good Reason. If the
Executive proposes to terminate the Executive's employment for Good
Reason under paragraph 4(c) above (other than the last sentence of
paragraph 4(c) above), the Executive shall give written notice to the
Company, specifying the reason therefor with particularity. In the
event the Executive proposes to terminate employment for Good Reason
under paragraph 4(c)(i), (ii), (iii) or (iv)
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above, the termination shall be effective on the date of such notice.
In the event the Executive proposes to terminate employment for Good
Reason under paragraph 4(c)(v) above, the Company will have an
opportunity to correct any curable situation to the reasonable
satisfaction of the Executive within the period of time specified in
the notice which shall not be less than thirty (30) days. If such
correction is not so made or the circumstances or situation is such
that it is not curable, the Executive may, within thirty (30) days
after the expiration of the time so fixed within which to correct such
situation, give written notice to the Company that the Executive's
employment is terminated for Good Reason effective forthwith.
(f) Severance Benefits. If the Executive is entitled to severance
benefits under this paragraph 4(f) pursuant to paragraph 4(c) or (d) prior to a
Change in Control or following twenty-four months after a Change in Control, the
Executive shall be provided the following benefits (regardless of the death or
disability of the Executive after the Termination Date):
(i) Base Salary. The Company shall continue to pay to the
Executive the Base Salary when and as such Base Salary would have been
paid from the date of termination (the "Termination Date") through the
end of the term of this Agreement under paragraph 2 as if such
termination did not occur and there were no further automatic
extensions of the term pursuant to paragraph 2 (the "Severance Period")
as if the Executive continued to be employed by the Company during the
Severance Period and regardless of the death or disability of the
Executive subsequent to the Termination Date.
(ii) Annual Bonus. If the effective date of such termination
occurs before the Annual Bonus for any preceding calendar year has been
paid, the Company shall, within thirty (30) days after the Termination
Date, pay to the Executive the amount of the Executive's Annual Bonus
for such preceding calendar year when and as it would have been paid if
the Executive remained employed by the Company. In addition, for each
calendar year within the Severance Period (including the calendar year
in which the Termination Date occurs), the Company shall, within thirty
(30) days after the end of each such calendar year, pay the Executive a
bonus equal to the Deemed Bonus (as defined below). The "Deemed Bonus"
shall be an amount equal to (A) prior to a Change in Control, the
average of the Annual Bonus paid to the Executive for the two complete
calendar years prior to the Termination Date, or (B) upon or after a
Change in Control, the greater of (x) the average of the Annual Bonus
paid to the Executive for the calendar year(s) after the Change in
Control (including the calendar year in which a Change in Control
occurs) or (y) the average of the Annual Bonus paid or payable to the
Executive in respect of the two calendar years immediately preceding
the calendar year in which the Change in Control occurs.
(iii) Disability, Life Insurance and Medical/Dental Coverage.
The Executive shall be entitled to the disability coverage, life
insurance and medical/dental coverage which the Executive and the
Executive's family received under paragraph 3(e) as if the Executive
continued to be employed by the Company during the Severance Period;
provided that if Executive obtains new employment with comparable
benefits during the Severance Period, all entitlements under this
paragraph 4(f)(iii) shall cease. Nothing in this paragraph shall be
construed as providing Executive with coverage under any plan of the
Company to which
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Executive would not otherwise be entitled and in the event any coverage
is unavailable (e.g., if Executive is uninsurable), the Company's
obligations under this paragraph may be satisfied by paying to
Executive the cost of such coverage if it were available, as determined
in good faith by the Company.
(iv) Stock Options. Not later than thirty (30) days after the
date on which the Executive's employment terminates, the Company shall
pay the Executive a lump sum cash payment equal to the amount by which
the fair market value (determined as of the Termination Date) of the
number of shares of stock subject to any stock option granted under the
Stock Plans which was not exercisable on the Termination Date and which
would have become vested and exercisable during the Severance Period if
the Executive had remained employed by the Company during the Severance
Period.
(g) Severance Benefits for Change in Control. In the event of a Change
in Control and either upon or within (and including) twenty-four (24) months
after such Change in Control, the Executive terminates employment for Good
Reason or the Executive's employment is terminated by the Company for any reason
other than Cause, then (regardless of the death or disability of the Executive
after the Termination Date) the Company shall pay the Executive a lump sum cash
payment within five (5) days after the Termination Date, in an amount equal to
the amounts referred to in paragraph 4(f)(i), (ii) and (iv), plus the amount of
the Deemed Bonus (as defined below), and the Company shall also provide the
Executive the severance benefits referred to in paragraph 4(f)(iii) as provided
therein.
(h) Excise Tax Gross-Up. If Executive is subject to any Excise Tax (as
defined below) as a result of the severance payments and/or benefits to which
Executive is entitled under paragraphs 4(f) or 4(g), the Company shall also pay
the Executive the Gross-Up Payment in accordance with the following provisions:
(i) Gross-Up Payment. Anything to the contrary
notwithstanding, in the event it shall be determined that any payment,
distribution or benefit made or provided by the Company to or for the
benefit of the Executive (whether pursuant to this Agreement or
otherwise) (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, (the
"Code") or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then the Company shall
pay the Executive in cash an amount (the "Gross-Up Payment") such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including but not
limited to income taxes (and any interest and penalties imposed with
respect thereto) and the Excise Tax, imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed on the Payments.
(ii) Determination of Gross-Up Payment. Subject to paragraph
4(h)(iii) below, all determinations required to be made under paragraph
4(h)(i), including whether a Gross-Up Payment is required and the
amount of the Gross-Up Payment, shall be made by the firm of
independent public accountants selected by the Company to audit its
financial statements for the year immediately preceding the Change in
Control (the "Accounting Firm") which
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shall provide detailed supporting calculations to the Company and the
Executive within thirty (30) days after the Termination Date. In the
event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control, the
Executive shall appoint another nationally recognized accounting firm
to make the determinations required under this paragraph 4(h) (which
accounting firm shall then be referred to as the "Accounting Firm").
All fees and expenses of the Accounting Firm in connection with the
work it performs pursuant to this paragraph 4(h) shall be promptly paid
by the Company. Any Gross-Up Payment (as determined pursuant to
paragraph 4(h)(i) above) shall be paid by the Company to the Executive
within five (5) days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the imposition
of a negligence or a similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As
a result of the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm,
it is possible that Gross-up Payments which will not have been made by
the Company should have been made ("Underpayment"). In the event that
the Company exhausts its remedies pursuant to paragraph 4(h)(iii)
below, and the Executive is thereafter required to make a payment of
Excise Tax, the Accounting Firm shall promptly determine the amount of
the Underpayment that has occurred and any such Underpayment shall be
paid by the Company to the Executive within five (5) days after such
determination.
(iii) Contest. The Executive shall notify the Company in
writing of any claim made by the Internal Revenue Service that, if
successful, would require the Company to pay a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
ten (10) business days after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the thirty (30) day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to
contest such claim, the Employee shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim;
(B) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, without limitation, accepting legal
representation with respect to such claim by an attorney
selected by the Company and reasonably acceptable to the
Executive;
(C) cooperate with the Company in good faith in order
effectively to contest such claim;
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(D) permit the Company to participate in any
proceedings relating to such claim; provided, however, that
the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax
or income tax, including interest and penalties with respect
thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this paragraph 4(h)(iii), the Company
shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Executive to
pay the tax claimed and xxx for a refund or contest the claim
in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the
Executive to pay such claim and xxx for a refund, the Company
shall advance the amount of such payment to the Executive, on
an interest-free basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto, imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that
any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable
hereunder, and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph 4(h)(iii), the Executive
becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of paragraph 4(h)(iii)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to paragraph
4(h)(iii), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid, and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required to be paid.
(i) Benefits in Lieu of Severance Pay Policy. The severance benefits
provided for in this paragraph 4 are in lieu of any benefits that would
otherwise be provided to the Executive under the Company's severance pay policy
and the Executive shall not be entitled to any benefits under the Company's
severance pay policy.
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(j) No Funding of Severance. Nothing contained in this Agreement or
otherwise shall require the Company to segregate, earmark or otherwise set aside
any funds or other assets to provide for any payments required to be made under
this paragraph 4 and the rights of the Executive to the severance benefits
hereunder shall be solely those of a general, unsecured creditor of the Company.
However, the Company may, in its discretion, deposit cash or property, or a
combination of both, equal in value to all or a portion of the amounts
anticipated to be payable hereunder into a trust, the assets of which are to be
distributed by such times as determined by the trustee of such trust; provided
that such assets shall be subject at all times to the rights of the Company's
general creditors.
(k) Definition of Change in Control. A "Change in Control" shall be
deemed to have occurred if, prior to the expiration of the term of this
Agreement:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934) (other than Allianz Life
Insurance Company of North America and its affiliates or the Company or
any of its Subsidiaries or any employee benefit plan of the Company or
any of its Subsidiaries) becomes a beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of
the voting power of all of the Company's then outstanding securities,
except for issuances of shares approved by a majority of the Incumbent
Directors (as defined below) then in office; or
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
of the Company (the "Incumbent Directors") together with any director
(the "New Incumbent Director") whose nomination or election was
approved by at least two-thirds of the Incumbent Directors and any New
Incumbent Director who was previously elected, in each case who are
directors at the time of the nomination or election of such director
cease, for any reason to constitute at least a majority of the Board of
Directors of the Company; or
(iii) the shareholders of the Company approve the sale of all,
or substantially all, of the business or assets of the Company or the
liquidation or dissolution of the Company.
5. Confidentiality; Non-Solicitation Covenant; and Covenant Not to
Compete.
(a) Confidentiality. The Executive agrees that, at all times, both
during the Executive's employment and after the termination thereof, the
Executive shall not divulge to any other person, firm or corporation, or in any
way use for the Executive's own benefit, except as required in the conduct of
the business of the Company or any of its Subsidiaries or as authorized in
writing on behalf of the Company, any trade secrets or confidential information
of the Company or its Subsidiaries obtained during the course of the Executive's
employment with the Company or its Subsidiaries. The Executive also agrees that
the Executive will not, either subsequent to termination of employment or during
employment, except as required in the conduct of the business of the Company or
any of its Subsidiaries, or as authorized in writing on behalf of the Company,
interfere with or disturb or attempt to interfere with or disturb any
employment, contractual or business arrangements of the Company or any of its
Subsidiaries with any of its employees, agents, suppliers,
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customers, reinsurers or other parties with which the Company or any of its
Subsidiaries has a contractual relationship, as the case may be.
(b) Non-Solicitation Covenant. While the Executive is actively employed
with the Company and, in the event of a termination of employment with the
Company for any reason, for a period of two years after the Termination Date,
the Executive agrees that, except with the prior written permission of the Board
of Directors of the Company, the Executive will not offer to hire, entice away,
or in any manner attempt to persuade any officer, employee, or agent of the
Company or any of the Subsidiaries to discontinue his or her relationship with
the Company or any of the Subsidiaries nor will the Executive directly or
indirectly solicit, divert, take away or attempt to solicit any business of the
Company or any of its Subsidiaries as to which Executive has acquired any
knowledge during the term of the Executive's employment with the Company.
(c) Covenant Not to Compete. The Executive acknowledges and agrees with
the Company that during the course of the Executive's employment with the
Company, the Executive has had and will continue to have the opportunity to
develop relationships with existing employees, customers and other business
associates of the Company and the Subsidiaries, which relationships constitute
goodwill of the Company, and the Executive acknowledges and agrees that the
Company would be irreparably damaged if the Executive were to take actions that
would damage or misappropriate such goodwill. The Executive acknowledges that
the Company and its Subsidiaries currently engages throughout the United States
(the "Territory"), the business of the development, sale, marketing and
administration of life insurance, annuities and extended care insurance products
(the "Subject Business"). Accordingly, during the term of the Executive's
employment with the Company and (i) prior to a Change of Control, and in the
case of a voluntary termination by the Executive under paragraph 4(d) or a
termination by the Company for Cause under paragraph 4(b), the balance of the
term of this Agreement under paragraph 2 as if no termination of employment
occurred but notice of termination of the automatic extension was given either
by the Executive at the time of his notice of voluntary resignation or given by
the Company at the time of its notice of termination for Cause, or (ii) after a
Change in Control, one year after the Termination Date (the "Noncompete
Period"), the Executive shall not, directly or indirectly, enter into, engage
in, assist, give or lend funds to or otherwise finance, be employed by or
consult with, or have a financial or other interest in, any business which
engages in the Subject Business, whether for or by himself or as an independent
contractor, agent, stockholder, partner or joint venturer for any other person,
provided that the aggregate ownership by the Executive of no more than two
percent of the outstanding equity securities of any person, which securities are
traded on a national or foreign securities exchange, quoted on the Nasdaq Stock
Market or other automated quotation system or, in the case of the Company, of no
more than ten percent of the Company's outstanding equity securities shall not
be deemed to be giving or lending funds to, otherwise financing or having a
financial interest in a competitor. In the event that any person in which the
executive has any financial or other interest directly or indirectly enters into
the Subject Business in the Territory during the Noncompete Period, the
Executive shall divest all of his interest (other than any amount permitted
under this paragraph) in such person within 30 days after such person enters
into the Subject Business in the Territory.
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(d) Remedies. If the Executive commits a breach, or threatens to commit
a breach, of any of the provisions of this paragraph 5, the Company shall have
the following rights and remedies, in addition to any rights and remedies
otherwise available at law or equity:
(i) The right and remedy to have the provisions of this
paragraph 5 specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed by the Executive that
any such breach or threatened breach will cause irreparable injury to
the Company and the Subsidiaries and that money damages will not
provide an adequate remedy to the Company and the Subsidiaries; and
(ii) The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies,
accruals, increments, or other benefits, other than those payable under
this Agreement, derived or received by the Executive or the enterprise
in competition with the Company or any of the Subsidiaries as the
result of any transactions constituting a breach of any part of this
paragraph 5, and Executive agrees to account for and pay over to the
Company such amounts promptly upon demand therefor.
(e) Without limiting the provisions of this paragraph 5, the Executive
acknowledges that the covenants of the Executive in this paragraph 5 extend in
every respect to include LTCA and its subsidiaries and are enforceable by LTCA
and its subsidiaries.
6. Beneficiaries. In the event of the Executive's death after
termination of employment, any amount or benefit payable or distributable to him
pursuant to this Agreement shall be paid to the beneficiary designated by the
Executive for such purpose in the last written instrument received by the
Company prior to the Executive's death, if any, or, if no beneficiary has been
designated, to the Executive's estate, but such designation shall not be deemed
to supersede any beneficiary designation under any benefit plan of the Company.
Whenever this Agreement provides for the written designation of a beneficiary or
beneficiaries of the Executive, the Executive shall have the right to revoke
such designation and to redesignate a beneficiary or beneficiaries by written
notice to either the Company to such effect, except to the extent, if any,
restricted by law.
7. Rights in the Event of Dispute. In the event of a dispute between
the Company and the Executive regarding the Executive's employment or this
Agreement, it is the intention of this Agreement that the dispute shall be
resolved as expeditiously as possible, consistent with fairness to both sides,
and that during pendency of the dispute the Executive and the Company shall be
on equal footing, as follows:
(a) Arbitration. Any claim or dispute relating to the Executive's
employment or the terms and performance of this Agreement (other than
enforcement of paragraph 5) shall be resolved by binding private arbitration
before three arbitrators, and any award rendered by any arbitration panel, or a
majority thereof, may be filed and a judgment obtained in any court having
jurisdiction over the parties unless the relief granted in the award is
delivered within ten (10) days of the award. Either party may request
arbitration by written notice to the other party. Within thirty (30) days of
receipt of such notice by the opposing party, each party shall appoint a
disinterested arbitrator and the two arbitrators selected thereby shall appoint
a third neutral arbitrator; in the event the two arbitrators cannot agree upon
the third arbitrator within ten (10) days after their appointment, then
11
the neutral arbitrator shall be appointed by the Chief Judge of Hennepin County
(Minnesota) District Court. Any arbitration proceeding conducted hereunder shall
be in the City of Minneapolis and shall follow the procedures set forth in the
Rules of Commercial Arbitration of the American Arbitration Association, and
both sides shall cooperate in as expeditious a resolution of the proceeding as
is reasonable under the circumstances. The arbitration panel shall have the
power to enter any relief it deems fair and just on any claim, including interim
and final equitable relief, along with any procedural order that is reasonable
under the circumstances.
(b) Expenses of Prosecution/Defense of Claim. During the pendency of a
dispute between the Company and the Executive relating to the Executive's
employment or the terms or performance of this Agreement, the Company shall
promptly pay the Executive's reasonable expenses of representation upon delivery
of periodic xxxxxxxx for same, provided that (i) Executive (or a person claiming
on the Executive's behalf) shall promptly repay all amounts paid hereunder at
the conclusion of the dispute if the resolution thereof includes a finding that
the Executive did not act in good faith in the matter in dispute or in the
dispute proceeding itself, and (ii) no claim for expenses of representation
shall be submitted by the Executive or any person acting on the Executive's
behalf unless made in writing to the Board of Directors within one year of the
performance of the services for which such claim is made.
8. No Obligation to Mitigate Damages. In the event the Executive
becomes eligible to receive compensation or benefits subsequent to the
termination of the Executive's employment under this Agreement, the Executive
shall have no obligation to seek other employment in an effort to mitigate
damages. To the extent the Executive shall accept other employment after the
Executive's termination of employment, the compensation and benefits received
from such employment shall not reduce the compensation and benefits otherwise
due under this Agreement, except as provided in paragraph 4(f)(iii) above.
9. Other Benefits. The benefits provided under this Agreement shall,
except to the extent otherwise specifically provided herein, be in addition to,
and not in derogation or diminution of, any benefits that Executive or the
Executive's beneficiary may be entitled to receive under any other plan or
program now or hereafter maintained by the Company, or its Subsidiaries.
10. LTCA Stock Buyback. In connection with the formation of LTCA and
the execution of this Agreement, the Executive is purchasing 400,000 shares of
common stock of LTCA (the "Shares"). The Executive agrees that she will not
transfer the Shares or any right or interest therein without the prior written
consent of LTCA. In the event of the Executive's death or disability (as defined
in the Company's long term disability plan then in effect), in the event the
Executive voluntarily terminates his employment pursuant to paragraph 4(d), or
in the event the Executive is terminated for Cause pursuant to Section 4(b) of
this Agreement, the Executive acknowledges that LTCA may, but is not obligated
to, repurchase the Shares from the Executive at a price of ten cents ($.10) per
share plus interest on the original purchase price of the Shares from the date
of purchase at the rate of 10% per annum (the "purchase price"). LTCA must give
notice of its intention to the Executive within sixty (60) days of the event
giving rise to the repurchase option (or within one hundred (120) days after the
death of the Executive) and purchase the Shares within thirty (30) days of
giving such notice. The right of LTCA to repurchase the Shares pursuant to this
paragraph 10 shall terminate on December 30, 2001.
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11. Successors. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company, to expressly
assume and agree to perform its obligations under this Agreement in the same
manner and to the same extent that the Company would be required to perform them
if no succession had taken place unless, in the opinion of legal counsel
mutually acceptable to the Company and the Executive, such obligations have been
assumed by the successor as a matter of law. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession (unless the
foregoing opinion is rendered to the Executive) shall entitle the Executive to
terminate the Executive's employment and to receive the payments provided for in
paragraphs 4(f), 4(g) and 4(h), as the case may be, as if the Executive
terminated this Agreement for Good Reason. The Executive's rights under this
Agreement shall inure to the benefit of, and shall be enforceable by, the
Executive's legal representative or other successors in interest, but shall not
otherwise be assignable or transferable. The Company's rights under this
Agreement shall inure to the benefit of, and shall be enforceable by, the
Company and its Subsidiaries' (including without limitation LTCA) successors and
assigns of any of them.
12. Assignability. In the event that it is determined between LTCA and
the Company that the Executive should be a direct employee of LTCA, this
Agreement shall be amended to reflect that relationship (including without
limitation the assumption by LTCA of the Company's obligations under paragraphs
3 and 4 hereof), provided that the obligations of the Executive to the Company
under paragraph 5 of the Agreement and the rights of the parties in the event of
a dispute with respect to such obligations shall continue to be binding on the
parties for so long as such obligations and rights exist between LTCA and the
Executive in accordance with this Agreement.
13. Severability. If any provision of this Agreement or the application
thereof is held invalid or unenforceable, the invalidity or unenforceability
thereof shall not affect any other provisions or applications of this Agreement
which can be given effect without the invalid or unenforceable provision or
application.
14. Survival. The rights and obligations of the parties pursuant to
this Agreement shall survive the term of the employment to the extent that any
performance is required hereunder after the expiration or termination of such
term.
15. Notices. All notices under this Agreement shall be in writing and
shall be deemed effective when delivered in person (in the Company's case, to
its Secretary) or 48 hours after deposit thereof in the U.S. mails, postage
prepaid, addressed, in the case of the Executive, to the Executive's last known
address as carried on the personnel records of the Company and, in the case of
the Company, to the corporate headquarters, attention of the Secretary, or to
such other address as the party to be notified may specify by written notice to
the other party. Any notices required to be given to LTCA shall be given to its
corporate headquarters, attention of the Secretary.
13
16. Amendments and Construction. This Agreement may only be amended in
a writing signed by the parties hereto. This Agreement shall be construed under
the laws of the State of Minnesota. Paragraph headings are for convenience only
and shall not be considered a part of the terms and provisions of the Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.
LIFE USA HOLDING, INC.
By: /s/ Xxxxxx X. XxxXxxxxx
-----------------------------
Xxxxxx X. XxxXxxxxx, Chairman
and Chief Executive Officer
/s/ Xxxxx Xxxx
---------------------------------
Xxxxx Xxxx
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of December 17, 1998 between
LIFE USA HOLDING, INC., a Minnesota corporation (the "Company"), and XXXXX
XXXXXXXXX (the "Executive").
R E C I T A L S
WHEREAS, the Executive is now and has been an employee of the Company
providing services to its marketing subsidiary;
WHEREAS, the Company's subsidiary, LifeUSA Insurance Company, has
formed a subsidiary, LTCAmerica Holding, Inc., a Minnesota corporation ("LTCA"),
for the purpose of offering life insurance, annuity products and health
insurance; and
WHEREAS, the Company and the Executive wish to enter into this
Agreement to provide for the continued employment of Executive and in connection
with making the services of the Executive available to LTCA and its
subsidiaries, all on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual premises and agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Employment and Duties. The parties hereby agree that, during the
term of this Agreement as set forth in paragraph 2 below, the Executive shall be
employed by the Company and will provide services to LTCA as the Senior Vice
President and Chief Operating Officer with the duties and responsibilities
attendant to such position. In discharging such duties and responsibilities, the
Executive may also serve as an executive officer and/or director of any direct
or indirect subsidiary of the Company (collectively the "Subsidiaries"). The
salary, other compensation and benefits provided herein may be allocated among
the Company and the Subsidiaries based upon the portion of the Executive's
services provided to the Company and each of the Subsidiaries, respectively, and
the Executive shall assist the Company in making such allocation as the Company
may reasonably request. During the term of this Agreement, the Executive shall
apply on a full-time basis (allowing for usual vacations and sick leave) all of
the Executive's skill and experience to the performance of the Executive's
duties hereunder with the Company and the Subsidiaries. It is understood that
the Executive may have other business investments and participate in charitable
organizations which may, from time to time, require minor portions of
Executive's time, but which shall not interfere or be inconsistent with the
Executive's duties under this Agreement. The Executive shall perform the
Executive's duties at the Company's principal executive offices in Minneapolis,
Minnesota or at such other location as may be mutually agreed upon by the
Executive and the Company, provided that the Executive shall travel to other
locations at such times as may be necessary for the performance of the
Executive's duties under this Agreement.
2. Term of Employment. Unless sooner terminated as provided in
paragraph 4 below, the term of this Agreement shall commence on the date hereof
and shall continue through December 31, 2001; provided that the term shall be
automatically extended for one year on each December 31st commencing December
31, 1999 unless either party gives written notice to the other prior to the date
on which the automatic extension would be effective, provided that the term
shall not be extended beyond Executive's sixty-fifth (65th) birthday.
3. Compensation and Benefits. During the term of this Agreement, the
Executive shall be entitled to the following compensation and benefits for
service to the Company and the Subsidiaries, including any services as a
director of the Company or its Subsidiaries:
(a) Base Salary. The Executive shall be paid a base salary at a minimum
annual rate of $90,000, payable in accordance with the Company's customary
payroll policy, which salary shall be reviewed and may be increased from time to
time at the discretion of the Board of Directors of the Company or the
Compensation Committee of the Board of Directors (the "Base Salary"), provided
that the amount of the Base Salary shall not be reduced after it has been
increased by the Board of Directors or the Compensation Committee without the
Executive's written consent. The performance of the Executive shall be reviewed
at least once each calendar year which may be at the same time as any adjustment
to the Base Salary of Executive. So long as the Executive performs services for
LTCA or its subsidiaries, the Base Salary and other benefits received by the
Executive hereunder shall be reimbursed by LTCA in accordance with the current
leasing agreement between LTCA and the Company, unless this Agreement is
assigned to LTCA pursuant to paragraph 5 hereof.
(b) Bonus. The Executive shall, in addition to the Base Salary, also be
entitled to a cash annual bonus (the "Annual Bonus") based on the achievement by
the Company of performance goals established by the Board of Directors or the
Compensation Committee of the Company's Board of Directors.
(c) Stock Incentives. The Executive shall be eligible to receive stock
options under any stock based plan from time to time adopted by the Company (the
"Stock Plans"), as from time to time determined by the Board of Directors or
Stock Option Committee of the Company's Board of Directors.
(d) Reimbursement of Expenses. The Company shall reimburse the
Executive for all business expenses properly documented in accordance with the
Company's expense reimbursement policy.
(e) Other Benefits. The Executive shall be entitled to participate and
shall be included in any employee benefit plan, medical/dental coverage plan,
life insurance plan, disability coverage plan, or similar benefit plan of the
Company now existing or established hereafter which are generally applicable to
executives of the Company.
2
4. Termination of Employment.
(a) Death or Disability. In the event of the Executive's death or
disability (as defined in the Company's long term disability plan then in
effect), the employment of the Executive hereunder shall terminate and the
Company's obligation to make further Base Salary and Annual Bonus (to the extent
not yet earned) payments hereunder shall thereupon terminate as of the end of
the month in which such death or disability occurs. The Executive's rights to
other compensation and benefits shall be determined under the Company's benefit
plans and policies applicable to Company executives then in effect.
(b) Termination for Cause by the Company. By following the procedure
set forth in paragraph 4(e), the Company shall have the right to terminate the
employment of the Executive for "Cause" in the event the Executive: (i) has
repeatedly failed to perform the Executive's duties under this Agreement, which
failure is willful and deliberate; (ii) has engaged in an act or acts of
dishonesty which is or are intended to result in substantial personal enrichment
for the Executive; (iii) has knowingly engaged in conduct which is materially
injurious to the Company; (iv) is convicted of, or pleads nolo contendere to (A)
any felony (other than any felony arising out of negligence), or (B) any crime
or offense involving dishonesty with respect to the Company or any of the
Subsidiaries; (v) has failed to comply with the covenants contained in paragraph
5 of this Agreement; or (vi) knowingly provides materially misleading
information concerning the Company to the Board of Directors of the Company or
any of its Subsidiaries, any governmental body or regulatory agency or to any
lender or other financing source or proposed financing source of the Company or
its Subsidiaries. If the employment of the Executive is terminated by the
Company for Cause, the Company's obligation to make further Base Salary and
Annual Bonus (to the extent not yet earned) payments hereunder shall thereupon
terminate, except the Executive shall receive the Base Salary through the end of
the month during which such a termination occurs. The Executive's rights to
other compensation and benefits shall be determined under the Company's benefit
plans and policies applicable to executives of the Company then in effect.
(c) Termination for Good Reason by the Executive. By following the
procedure set forth in paragraph 4(e), the Executive shall have the right to
terminate the Executive's employment with the Company for "Good Reason" in the
event (i) the Executive is not at all times a duly elected executive officer of
the Company or a Subsidiary; (ii) there is any material reduction in the scope
of the Executive's authority and responsibility; (iii) there is a reduction in
the Executive's Base Salary, a material reduction in the amount of Annual Bonus
for which the Executive is eligible, an amendment to any Stock Plan or employee
retirement plan applicable to the Executive which is materially adverse to the
Executive, or a material reduction in the other benefits to which the Executive
is entitled under paragraph 3(e) above; (iv) the Company requires the
Executive's principal place of employment to be anywhere other than the
Company's principal executive offices, or there is a relocation of the Company's
principal executive offices outside of the Minneapolis/St. Xxxx, Minnesota
metropolitan area; or (v) the Company otherwise fails to perform its obligations
under this Agreement. If the employment of the Executive is terminated by the
Executive for Good Reason before a Change in Control (as defined below) or
following twenty-four (24) months after a Change in Control, the Executive shall
be entitled to the severance benefits set forth in paragraph 4(f) below. If the
employment of the Executive is terminated by the Executive for Good Reason
3
upon or within (and including) twenty-four (24) months after a Change in
Control, the Executive shall be entitled to the severance benefits set forth in
paragraph 4(g) below. In addition, in the event a Change in Control has occurred
and the Executive elects upon ten (10) days prior notice to the Company to
terminate employment with the Company within the sixty (60) day period following
the first anniversary of the Change in Control, such termination shall be
considered a termination by the Executive for Good Reason and the Executive
shall be entitled to the severance benefits under paragraph 4(g) below.
(d) Termination Without Cause; Voluntary Termination. The Company may
terminate the Executive's employment without Cause prior to the expiration of
the term of this Agreement. If the employment of the Executive is terminated by
the Company without Cause before a Change in Control or following twenty-four
(24) months after a Change in Control, the Executive shall be entitled to the
severance benefits set forth in paragraph 4(f) below. If the employment of the
Executive is terminated by the Company without Cause upon or within (and
including) twenty-four (24) months after a Change in Control, the Executive
shall be entitled to the severance benefits set forth in paragraph 4(g) below.
The Executive may voluntarily terminate his employment without Good Reason prior
to the expiration of the term of this Agreement by giving the Company at least
sixty (60) days prior written notice or such shorter period of time as the
Company's Board of Directors may determine. In the event the Executive
voluntarily resigns, the Executive's rights to further Base Salary payments and
the Annual Bonus (to the extent not yet earned) shall terminate on the effective
date of such resignation, and the Executive's rights to other compensation and
benefits shall be determined under the Company's benefit plans and policies
applicable to executives of the Company then in effect.
(e) Notice and Right to Cure.
(i) Termination by Company for Cause. If the Company proposes
to terminate the employment of the Executive for Cause under paragraph
4(b), the Company shall give written notice to the Executive specifying
the reasons for such proposed determination with particularity and, in
the case of a termination for Cause under paragraph 4(b)(i), the
Executive shall have a reasonable opportunity to correct any curable
situation to the reasonable satisfaction of the Board of Directors of
the Company, which period shall be no less than thirty (30) days from
the Executive's receipt of the notice of proposed termination.
Notwithstanding the foregoing, the Executive's employment shall not be
terminated for Cause unless and until there shall be delivered to the
Executive a copy of the resolution duly adopted by the affirmative vote
of not less than the majority of the members of the Board of Directors
of the Company at a meeting called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's legal counsel, to be heard
before the Board of Directors) finding that, in the opinion of the
Company's Board of Directors, the Executive has engaged in conduct
justifying a termination for Cause.
(ii) Termination by Executive for Good Reason. If the
Executive proposes to terminate the Executive's employment for Good
Reason under paragraph 4(c) above (other than the last sentence of
paragraph 4(c) above), the Executive shall give written notice to the
4
Company, specifying the reason therefor with particularity. In the
event the Executive proposes to terminate employment for Good Reason
under paragraph 4(c)(i), (ii), (iii) or (iv) above, the termination
shall be effective on the date of such notice. In the event the
Executive proposes to terminate employment for Good Reason under
paragraph 4(c)(v) above, the Company will have an opportunity to
correct any curable situation to the reasonable satisfaction of the
Executive within the period of time specified in the notice which shall
not be less than thirty (30) days. If such correction is not so made or
the circumstances or situation is such that it is not curable, the
Executive may, within thirty (30) days after the expiration of the time
so fixed within which to correct such situation, give written notice to
the Company that the Executive's employment is terminated for Good
Reason effective forthwith.
(f) Severance Benefits. If the Executive is entitled to severance
benefits under this paragraph 4(f) pursuant to paragraph 4(c) or (d) prior to a
Change in Control or following twenty-four months after a Change in Control, the
Executive shall be provided the following benefits (regardless of the death or
disability of the Executive after the Termination Date):
(i) Base Salary. The Company shall continue to pay to the
Executive the Base Salary when and as such Base Salary would have been
paid from the date of termination (the "Termination Date") through the
end of the term of this Agreement under paragraph 2 as if such
termination did not occur and there were no further automatic
extensions of the term pursuant to paragraph 2 (the "Severance Period")
as if the Executive continued to be employed by the Company during the
Severance Period and regardless of the death or disability of the
Executive subsequent to the Termination Date.
(ii) Annual Bonus. If the effective date of such termination
occurs before the Annual Bonus for any preceding calendar year has been
paid, the Company shall, within thirty (30) days after the Termination
Date, pay to the Executive the amount of the Executive's Annual Bonus
for such preceding calendar year when and as it would have been paid if
the Executive remained employed by the Company. In addition, for each
calendar year within the Severance Period (including the calendar year
in which the Termination Date occurs), the Company shall, within thirty
(30) days after the end of each such calendar year, pay the Executive a
bonus equal to the Deemed Bonus (as defined below). The "Deemed Bonus"
shall be an amount equal to (A) prior to a Change in Control, the
average of the Annual Bonus paid to the Executive for the two complete
calendar years prior to the Termination Date, or (B) upon or after a
Change in Control, the greater of (x) the average of the Annual Bonus
paid to the Executive for the calendar year(s) after the Change in
Control (including the calendar year in which a Change in Control
occurs) or (y) the average of the Annual Bonus paid or payable to the
Executive in respect of the two calendar years immediately preceding
the calendar year in which the Change in Control occurs.
(iii) Disability, Life Insurance and Medical/Dental Coverage.
The Executive shall be entitled to the disability coverage, life
insurance and medical/dental coverage which the Executive and the
Executive's family received under paragraph 3(e) as if the Executive
continued to be employed by the Company during the Severance Period;
provided that if
5
Executive obtains new employment with comparable benefits during the
Severance Period, all entitlements under this paragraph 4(f)(iii) shall
cease. Nothing in this paragraph shall be construed as providing
Executive with coverage under any plan of the Company to which
Executive would not otherwise be entitled and in the event any coverage
is unavailable (e.g., if Executive is uninsurable), the Company's
obligations under this paragraph may be satisfied by paying to
Executive the cost of such coverage if it were available, as determined
in good faith by the Company.
(iv) Stock Options. Not later than thirty (30) days after the
date on which the Executive's employment terminates, the Company shall
pay the Executive a lump sum cash payment equal to the amount by which
the fair market value (determined as of the Termination Date) of the
number of shares of stock subject to any stock option granted under the
Stock Plans which was not exercisable on the Termination Date and which
would have become vested and exercisable during the Severance Period if
the Executive had remained employed by the Company during the Severance
Period.
(g) Severance Benefits for Change in Control. In the event of a Change
in Control and either upon or within (and including) twenty-four (24) months
after such Change in Control, the Executive terminates employment for Good
Reason or the Executive's employment is terminated by the Company for any reason
other than Cause, then (regardless of the death or disability of the Executive
after the Termination Date) the Company shall pay the Executive a lump sum cash
payment within five (5) days after the Termination Date, in an amount equal to
the amounts referred to in paragraph 4(f)(i), (ii) and (iv), plus the amount of
the Deemed Bonus (as defined below), and the Company shall also provide the
Executive the severance benefits referred to in paragraph 4(f)(iii) as provided
therein.
(h) Excise Tax Gross-Up. If Executive is subject to any Excise Tax (as
defined below) as a result of the severance payments and/or benefits to which
Executive is entitled under paragraphs 4(f) or 4(g), the Company shall also pay
the Executive the Gross-Up Payment in accordance with the following provisions:
(i) Gross-Up Payment. Anything to the contrary
notwithstanding, in the event it shall be determined that any payment,
distribution or benefit made or provided by the Company to or for the
benefit of the Executive (whether pursuant to this Agreement or
otherwise) (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, (the
"Code") or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then the Company shall
pay the Executive in cash an amount (the "Gross-Up Payment") such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including but not
limited to income taxes (and any interest and penalties imposed with
respect thereto) and the Excise Tax, imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed on the Payments.
6
(ii) Determination of Gross-Up Payment. Subject to paragraph
4(h)(iii) below, all determinations required to be made under paragraph
4(h)(i), including whether a Gross-Up Payment is required and the
amount of the Gross-Up Payment, shall be made by the firm of
independent public accountants selected by the Company to audit its
financial statements for the year immediately preceding the Change in
Control (the "Accounting Firm") which shall provide detailed supporting
calculations to the Company and the Executive within thirty (30) days
after the Termination Date. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations
required under this paragraph 4(h) (which accounting firm shall then be
referred to as the "Accounting Firm"). All fees and expenses of the
Accounting Firm in connection with the work it performs pursuant to
this paragraph 4(h) shall be promptly paid by the Company. Any Gross-Up
Payment (as determined pursuant to paragraph 4(h)(i) above) shall be
paid by the Company to the Executive within five (5) days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion that failure to report the
Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or a similar
penalty. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm, it is possible that Gross-up
Payments which will not have been made by the Company should have been
made ("Underpayment"). In the event that the Company exhausts its
remedies pursuant to paragraph 4(h)(iii) below, and the Executive is
thereafter required to make a payment of Excise Tax, the Accounting
Firm shall promptly determine the amount of the Underpayment that has
occurred and any such Underpayment shall be paid by the Company to the
Executive within five (5) days after such determination.
(iii) Contest. The Executive shall notify the Company in
writing of any claim made by the Internal Revenue Service that, if
successful, would require the Company to pay a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
ten (10) business days after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the thirty (30) day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to
contest such claim, the Employee shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim;
(B) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, without limitation,
7
accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable
to the Executive;
(C) cooperate with the Company in good faith in order
effectively to contest such claim;
(D) permit the Company to participate in any
proceedings relating to such claim; provided, however, that
the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax
or income tax, including interest and penalties with respect
thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this paragraph 4(h)(iii), the Company
shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Executive to
pay the tax claimed and xxx for a refund or contest the claim
in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the
Executive to pay such claim and xxx for a refund, the Company
shall advance the amount of such payment to the Executive, on
an interest-free basis, from any Excise Tax or income tax,
including interest or penalties with respect thereto, imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that
any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable
hereunder, and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph 4(h)(iii), the Executive
becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of paragraph 4(h)(iii)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to paragraph
4(h)(iii), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be
required to be
8
repaid, and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
(i) Benefits in Lieu of Severance Pay Policy. The severance benefits
provided for in this paragraph 4 are in lieu of any benefits that would
otherwise be provided to the Executive under the Company's severance pay policy
and the Executive shall not be entitled to any benefits under the Company's
severance pay policy.
(j) No Funding of Severance. Nothing contained in this Agreement or
otherwise shall require the Company to segregate, earmark or otherwise set aside
any funds or other assets to provide for any payments required to be made under
this paragraph 4 and the rights of the Executive to the severance benefits
hereunder shall be solely those of a general, unsecured creditor of the Company.
However, the Company may, in its discretion, deposit cash or property, or a
combination of both, equal in value to all or a portion of the amounts
anticipated to be payable hereunder into a trust, the assets of which are to be
distributed by such times as determined by the trustee of such trust; provided
that such assets shall be subject at all times to the rights of the Company's
general creditors.
(k) Definition of Change in Control. A "Change in Control" shall be
deemed to have occurred if, prior to the expiration of the term of this
Agreement:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934) (other than Allianz Life
Insurance Company of North America and its affiliates or the Company or
any of its Subsidiaries or any employee benefit plan of the Company or
any of its Subsidiaries) becomes a beneficial owner, directly or
indirectly, of securities of the Company representing 20% or more of
the voting power of all of the Company's then outstanding securities,
except for issuances of shares approved by a majority of the Incumbent
Directors (as defined below) then in office; or
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
of the Company (the "Incumbent Directors") together with any director
(the "New Incumbent Director") whose nomination or election was
approved by at least two-thirds of the Incumbent Directors and any New
Incumbent Director who was previously elected, in each case who are
directors at the time of the nomination or election of such director
cease, for any reason to constitute at least a majority of the Board of
Directors of the Company; or
(iii) the shareholders of the Company approve the sale of all,
or substantially all, of the business or assets of the Company or the
liquidation or dissolution of the Company.
5. Confidentiality; Non-Solicitation Covenant; and Covenant Not to
Compete.
(a) Confidentiality. The Executive agrees that, at all times, both
during the Executive's employment and after the termination thereof, the
Executive shall not divulge to any other person, firm or corporation, or in any
way use for the Executive's own benefit, except as required in the
9
conduct of the business of the Company or any of its Subsidiaries or as
authorized in writing on behalf of the Company, any trade secrets or
confidential information of the Company or its Subsidiaries obtained during the
course of the Executive's employment with the Company or its Subsidiaries. The
Executive also agrees that the Executive will not, either subsequent to
termination of employment or during employment, except as required in the
conduct of the business of the Company or any of its Subsidiaries, or as
authorized in writing on behalf of the Company, interfere with or disturb or
attempt to interfere with or disturb any employment, contractual or business
arrangements of the Company or any of its Subsidiaries with any of its
employees, agents, suppliers, customers, reinsurers or other parties with which
the Company or any of its Subsidiaries has a contractual relationship, as the
case may be.
(b) Non-Solicitation Covenant. While the Executive is actively employed
with the Company and, in the event of a termination of employment with the
Company for any reason, for a period of two years after the Termination Date,
the Executive agrees that, except with the prior written permission of the Board
of Directors of the Company, the Executive will not offer to hire, entice away,
or in any manner attempt to persuade any officer, employee, or agent of the
Company or any of the Subsidiaries to discontinue his or her relationship with
the Company or any of the Subsidiaries nor will the Executive directly or
indirectly solicit, divert, take away or attempt to solicit any business of the
Company or any of its Subsidiaries as to which Executive has acquired any
knowledge during the term of the Executive's employment with the Company.
(c) Covenant Not to Compete. The Executive acknowledges and agrees with
the Company that during the course of the Executive's employment with the
Company, the Executive has had and will continue to have the opportunity to
develop relationships with existing employees, customers and other business
associates of the Company and the Subsidiaries, which relationships constitute
goodwill of the Company, and the Executive acknowledges and agrees that the
Company would be irreparably damaged if the Executive were to take actions that
would damage or misappropriate such goodwill. The Executive acknowledges that
the Company and its Subsidiaries currently engages throughout the United States
(the "Territory"), the business of the development, sale, marketing and
administration of life insurance, annuities and extended care insurance products
(the "Subject Business"). Accordingly, during the term of the Executive's
employment with the Company and (i) prior to a Change of Control, and in the
case of a voluntary termination by the Executive under paragraph 4(d) or a
termination by the Company for Cause under paragraph 4(b), the balance of the
term of this Agreement under paragraph 2 as if no termination of employment
occurred but notice of termination of the automatic extension was given either
by the Executive at the time of his notice of voluntary resignation or given by
the Company at the time of its notice of termination for Cause, or (ii) after a
Change in Control, one year after the Termination Date (the "Noncompete
Period"), the Executive shall not, directly or indirectly, enter into, engage
in, assist, give or lend funds to or otherwise finance, be employed by or
consult with, or have a financial or other interest in, any business which
engages in the Subject Business, whether for or by himself or as an independent
contractor, agent, stockholder, partner or joint venturer for any other person,
provided that the aggregate ownership by the Executive of no more than two
percent of the outstanding equity securities of any person, which securities are
traded on a national or foreign securities exchange, quoted on the Nasdaq Stock
Market or other automated quotation system or, in the case of the Company, of no
more than ten percent of the Company's outstanding equity
10
securities shall not be deemed to be giving or lending funds to, otherwise
financing or having a financial interest in a competitor. In the event that any
person in which the executive has any financial or other interest directly or
indirectly enters into the Subject Business in the Territory during the
Noncompete Period, the Executive shall divest all of his interest (other than
any amount permitted under this paragraph) in such person within 30 days after
such person enters into the Subject Business in the Territory.
(d) Remedies. If the Executive commits a breach, or threatens to commit
a breach, of any of the provisions of this paragraph 5, the Company shall have
the following rights and remedies, in addition to any rights and remedies
otherwise available at law or equity:
(i) The right and remedy to have the provisions of this
paragraph 5 specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed by the Executive that
any such breach or threatened breach will cause irreparable injury to
the Company and the Subsidiaries and that money damages will not
provide an adequate remedy to the Company and the Subsidiaries; and
(ii) The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies,
accruals, increments, or other benefits, other than those payable under
this Agreement, derived or received by the Executive or the enterprise
in competition with the Company or any of the Subsidiaries as the
result of any transactions constituting a breach of any part of this
paragraph 5, and Executive agrees to account for and pay over to the
Company such amounts promptly upon demand therefor.
(e) Without limiting the provisions of this paragraph 5, the Executive
acknowledges that the covenants of the Executive in this paragraph 5 extend in
every respect to include LTCA and its subsidiaries and are enforceable by LTCA
and its subsidiaries.
6. Beneficiaries. In the event of the Executive's death after
termination of employment, any amount or benefit payable or distributable to him
pursuant to this Agreement shall be paid to the beneficiary designated by the
Executive for such purpose in the last written instrument received by the
Company prior to the Executive's death, if any, or, if no beneficiary has been
designated, to the Executive's estate, but such designation shall not be deemed
to supersede any beneficiary designation under any benefit plan of the Company.
Whenever this Agreement provides for the written designation of a beneficiary or
beneficiaries of the Executive, the Executive shall have the right to revoke
such designation and to redesignate a beneficiary or beneficiaries by written
notice to either the Company to such effect, except to the extent, if any,
restricted by law.
7. Rights in the Event of Dispute. In the event of a dispute between
the Company and the Executive regarding the Executive's employment or this
Agreement, it is the intention of this Agreement that the dispute shall be
resolved as expeditiously as possible, consistent with fairness to both sides,
and that during pendency of the dispute the Executive and the Company shall be
on equal footing, as follows:
11
(a) Arbitration. Any claim or dispute relating to the Executive's
employment or the terms and performance of this Agreement (other than
enforcement of paragraph 5) shall be resolved by binding private arbitration
before three arbitrators, and any award rendered by any arbitration panel, or a
majority thereof, may be filed and a judgment obtained in any court having
jurisdiction over the parties unless the relief granted in the award is
delivered within ten (10) days of the award. Either party may request
arbitration by written notice to the other party. Within thirty (30) days of
receipt of such notice by the opposing party, each party shall appoint a
disinterested arbitrator and the two arbitrators selected thereby shall appoint
a third neutral arbitrator; in the event the two arbitrators cannot agree upon
the third arbitrator within ten (10) days after their appointment, then the
neutral arbitrator shall be appointed by the Chief Judge of Hennepin County
(Minnesota) District Court. Any arbitration proceeding conducted hereunder shall
be in the City of Minneapolis and shall follow the procedures set forth in the
Rules of Commercial Arbitration of the American Arbitration Association, and
both sides shall cooperate in as expeditious a resolution of the proceeding as
is reasonable under the circumstances. The arbitration panel shall have the
power to enter any relief it deems fair and just on any claim, including interim
and final equitable relief, along with any procedural order that is reasonable
under the circumstances.
(b) Expenses of Prosecution/Defense of Claim. During the pendency of a
dispute between the Company and the Executive relating to the Executive's
employment or the terms or performance of this Agreement, the Company shall
promptly pay the Executive's reasonable expenses of representation upon delivery
of periodic xxxxxxxx for same, provided that (i) Executive (or a person claiming
on the Executive's behalf) shall promptly repay all amounts paid hereunder at
the conclusion of the dispute if the resolution thereof includes a finding that
the Executive did not act in good faith in the matter in dispute or in the
dispute proceeding itself, and (ii) no claim for expenses of representation
shall be submitted by the Executive or any person acting on the Executive's
behalf unless made in writing to the Board of Directors within one year of the
performance of the services for which such claim is made.
8. No Obligation to Mitigate Damages. In the event the Executive
becomes eligible to receive compensation or benefits subsequent to the
termination of the Executive's employment under this Agreement, the Executive
shall have no obligation to seek other employment in an effort to mitigate
damages. To the extent the Executive shall accept other employment after the
Executive's termination of employment, the compensation and benefits received
from such employment shall not reduce the compensation and benefits otherwise
due under this Agreement, except as provided in paragraph 4(f)(iii) above.
9. Other Benefits. The benefits provided under this Agreement shall,
except to the extent otherwise specifically provided herein, be in addition to,
and not in derogation or diminution of, any benefits that Executive or the
Executive's beneficiary may be entitled to receive under any other plan or
program now or hereafter maintained by the Company, or its Subsidiaries.
10. LTCA Stock Buyback. In connection with the formation of LTCA and
the execution of this Agreement, the Executive is purchasing 400,000 shares of
common stock of LTCA (the "Shares"). The Executive agrees that she will not
transfer the Shares or any right or interest therein without the prior written
consent of LTCA. In the event of the Executive's death
12
or disability (as defined in the Company's long term disability plan then in
effect), in the event the Executive voluntarily terminates his employment
pursuant to paragraph 4(d), or in the event the Executive is terminated for
Cause pursuant to Section 4(b) of this Agreement, the Executive acknowledges
that LTCA may, but is not obligated to, repurchase the Shares from the Executive
at a price of ten cents ($.10) per share plus interest on the original purchase
price of the Shares from the date of purchase at the rate of 10% per annum (the
"purchase price"). LTCA must give notice of its intention to the Executive
within sixty (60) days of the event giving rise to the repurchase option (or
within one hundred twenty (120) days after the death of the Executive) and
purchase the Shares within thirty (30) days of giving such notice. The right of
LTCA to repurchase the Shares pursuant to this paragraph 10 shall terminate on
December 30, 2001.
11. Successors. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company, to expressly
assume and agree to perform its obligations under this Agreement in the same
manner and to the same extent that the Company would be required to perform them
if no succession had taken place unless, in the opinion of legal counsel
mutually acceptable to the Company and the Executive, such obligations have been
assumed by the successor as a matter of law. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession (unless the
foregoing opinion is rendered to the Executive) shall entitle the Executive to
terminate the Executive's employment and to receive the payments provided for in
paragraphs 4(f), 4(g) and 4(h), as the case may be, as if the Executive
terminated this Agreement for Good Reason. The Executive's rights under this
Agreement shall inure to the benefit of, and shall be enforceable by, the
Executive's legal representative or other successors in interest, but shall not
otherwise be assignable or transferable. The Company's rights under this
Agreement shall inure to the benefit of, and shall be enforceable by, the
Company and its Subsidiaries' (including without limitation LTCA) successors and
assigns of any of them.
12. Assignability. In the event that it is determined between LTCA and
the Company that the Executive should be a direct employee of LTCA, this
Agreement shall be amended to reflect that relationship (including without
limitation the assumption by LTCA of the Company's obligations under paragraphs
3 and 4 hereof), provided that the obligations of the Executive to the Company
under paragraph 5 of the Agreement and the rights of the parties in the event of
a dispute with respect to such obligations shall continue to be binding on the
parties for so long as such obligations and rights exist between LTCA and the
Executive in accordance with this Agreement.
13. Severability. If any provision of this Agreement or the application
thereof is held invalid or unenforceable, the invalidity or unenforceability
thereof shall not affect any other provisions or applications of this Agreement
which can be given effect without the invalid or unenforceable provision or
application.
14. Survival. The rights and obligations of the parties pursuant to
this Agreement shall survive the term of the employment to the extent that any
performance is required hereunder after the expiration or termination of such
term.
13
15. Notices. All notices under this Agreement shall be in writing and
shall be deemed effective when delivered in person (in the Company's case, to
its Secretary) or 48 hours after deposit thereof in the U.S. mails, postage
prepaid, addressed, in the case of the Executive, to the Executive's last known
address as carried on the personnel records of the Company and, in the case of
the Company, to the corporate headquarters, attention of the Secretary, or to
such other address as the party to be notified may specify by written notice to
the other party. Any notices required to be given to LTCA shall be given to its
corporate headquarters, attention of the Secretary.
16. Amendments and Construction. This Agreement may only be amended in
a writing signed by the parties hereto. This Agreement shall be construed under
the laws of the State of Minnesota. Paragraph headings are for convenience only
and shall not be considered a part of the terms and provisions of the Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.
LIFE USA HOLDING, INC.
By: /s/ Xxxxxx X. XxxXxxxxx
-----------------------------
Xxxxxx X. XxxXxxxxx, Chairman
and Chief Executive Officer
/s/ Xxxxx Xxxxxxxxx
---------------------------------
Xxxxx Xxxxxxxxx
